Ocado: Shares in M&S-linked grocer tumble after being labeled ‘underperforming’
Shares in M&S-linked grocer Ocado have tumbled after a leading broker downgraded the stock weeks after the company was demoted from the FTSE 100.
Ocado’s share price slumped 12 per cent today after it was downgraded by Bernstein.
The broker changed its rating from ‘outperform’ to ‘underperform’ and cut its price target from 1,000p to 250p, “having been one of the last bulls standing.”
“We have long been believers in the strength of Ocado’s technology, the customer fulfilment centres (CFCs) economics and the growth of online grocery, supporting their pipeline,” it said.
“However, online has not bounced back post-pandemic and CFCs have not ramped up as expected.”
Demand for online shopping has weakened since the pandemic and partnerships, which once looked so promising for Ocado, have failed to live up to expectations.
Partnerships have been paused – like Kroger and Sobey’s – or delayed (Coles). Ocado is also embroiled in a legal dispute with Marks and Spencer – which owns half of Ocado.com – over payments related to Ocado missing contractual targets.
Bernstein argued that Ocado will need at least another £500m of capital on top of refinancing by 2027 to meet its upcoming capital spending commitments.
The stock is the third-most shorted in London, with nearly seven per cent of its shares out on loan to funds.
“The market has been sceptical on Ocado for some time and now the analyst community is turning against it,” Dan Coatsworth, investment analyst at AJ Bell, said.
“Ocado has failed to live up to the hype and investors and analysts are fed up it is not delivering the goods.
“It was meant to have been the magic ingredient in a structural shift for grocers to use robots to make warehouses more efficient and support more online orders.
“Delays to existing growth plans and slow progress with winning extra work means more focus is being paid by the market to its finances. Bernstein suggests it will need to raise a lot of money over the next two to three years, creating an overhang for the share price and giving the market something new to worry about,” Coatsworth said.
It fell out of the FTSE 100 at the end of May. At its pandemic peak, the online grocer had a market cap of £22bn. It is now worth around £3bn.
According to Bloomberg, analyst projections on Ocado vary. The most bullish broker has a target price almost nine times higher than current levels, while the lowest price target is around a third below current levels.
Ocado is due to release interim results tomorrow, July 16.
Ocado’s share price call comes after Burberry’s valuation fell by even more this morning after it released a dismal set of results for the first half of the year.